Financial Crime World

Financial Crime Risk Assessment Reveals Cyprus’ Vulnerabilities

A recent report by MONEYVAL, the Council of Europe’s anti-money laundering (AML) and combating the financing of terrorism (CFT) evaluation body, has highlighted several areas where Cyprus needs to improve its fight against financial crime.

External Money Laundering Threats

According to the report, Cyprus is primarily exposed to external money laundering (ML) threats due to its status as an international financial centre. Criminals may seek to transfer criminal proceeds through Cyprus, particularly through the country’s banking system, or use trust and company service providers to facilitate their activities.

Terrorism Financing Risk

Although the terrorism threat in Cyprus is considered low, the authorities rate the terrorism financing (TF) risk as medium due to the country’s proximity to conflict areas. This poses a significant threat to the country’s financial system.

Strengths of Cyprus’ AML/CFT Regime

The report praised several aspects of Cyprus’ AML/CFT regime, including:

  • Good understanding of ML risks
  • Domestic cooperation between authorities
  • Support from the Financial Intelligence Unit (FIU) to competent authorities

Areas for Improvement

However, the report identified several weaknesses that need to be addressed, including:

  • Inadequate pursuit of ML from criminal proceeds generated outside of Cyprus
  • Weak implementation of preventive measures by trust and corporate services providers
  • Lack of uniform understanding of risks involved in evading targeted financial sanctions for TF and the proliferation of weapons of mass destruction
  • Increased risk to the real estate sector due to its popularity as an investment option under the Cyprus Investment Programme

Measures to Mitigate Risks

Despite these weaknesses, several measures have been deployed to mitigate risks effectively, including:

  • Good level of domestic cooperation and coordination between authorities
  • Sound supervisory practices by the Central Bank of Cyprus
  • Effective support from the FIU

Recommendations for Improvement

To address these weaknesses, MONEYVAL has made several recommendations, including:

  • A comprehensive ML and TF risk assessment of the real estate sector
  • Enhanced supervision of the real estate sector
  • Measures to increase compliance among real estate agents
  • Improved implementation of preventive measures by trust and corporate services providers
  • Increased cooperation with other countries to pursue ML from criminal proceeds generated outside of Cyprus